Loan Repayment Options
What are My Student Loan Repayment Options?
If you have a public loan from the Federal Government, you have some options for repayment*. Tread carefully though, just because you have options doesn’t mean they are all in your best interest – literally. What do I mean by that? Well, in some plans you save now, but you’ll end up paying more in the long run. It’s important to know what you’re signing up for, because time = money!
*Be sure to identify which loan type you have, as some are not eligible for all plans.
The Standard Plan- This one will take you approximately ten years to pay off your loan. It’s the default setting. Which you know from your tech products means- you don’t have to choose it. You can do absolutely nothing if this plan sounds good to you. In this case (and in my professional opinion), the best option here is laziness.
The Graduated Plan- I call it the ombre’ of repayment plans. In this plan, your payments will start off light but will gradually increase over time. You’ll spend more than the Standard Plan, however, according to the FSA website the timeline on this plan is up to 10 years as well.
The Extended Plan- For those who asked for extensions on their school papers. If you’d like an extension on your loan as well, you can have 25 years to pay it back! Payments can be fixed (same amount) monthly or graduated like in the plan above. Your payments will be lower, but you’ll pay more for taking your sweet time; so, consider if this extension is really worth it.
Pay as You Earn Plan*- This one’s a bit complicated because spoiler alert - it depends on your income. Your payments will be up to 10% of your discretionary income. The plan is recalculated annually based on changes in income and household size. i.e. If you get married or get a big raise, the government will want to know about it; not so they can send you a congratulations card, but so they can adjust your payments. The FSA even suggests this is a good option for those in public service (teachers, military, government, etc.) that qualify for loan forgiveness after 10 years.
*Just like your apps, there’s an updated version as well. Do your homework on this one if you qualify and think it’s a good choice for you.
Income Based Plans*- These plans as may have guessed, are based on your income. The FSA isn’t very creative with the naming of their plans, but they are when it comes to the details. Income based plans are very similar to the Pay as You Earn Plan but have slight differences. These differences include: the percent of discretionary income payments are based on, and the number of years (if not repaid) to receive loan forgiveness.
*There are three versions of this plan (and of course they are complicated), so check out more details here.
There’s no need to stress out about the plan you pick. As I mentioned, feel free to do absolutely nothing (AKA the Standard Plan)! My advice? Know how much money and time you’ll spend with the plan you ultimately choose. If you have a change of heart, you can switch your plan any time at no extra charge. And if you’re worried you won’t be able to pay back the money you borrowed, just wait 20 years or so (for Income Based or Pay as You Earn Plans) and the balance will be forgiven! Although, do you really want to be paying your loan back for the next 20 years? That’s 4x how long you spent in college, so consider the options and choose wisely!